What to Watch for in October’s Jobs Report

The Labor Department will release its monthly jobs report on Friday, a week late due to the last month’s partial government shutdown. Economists expect the report to show that the economy added 120,000 jobs in October, modestly slower than September’s preliminary reading of 148,000. The report takes on added importance because it’s the first look at how the shutdown affected the job market, and will likely also have major implications for Fed policy. But the shutdown could also make the report — already subject to significant revisions — harder to interpret.

Bloomberg News

Here’s what to watch for on Friday morning:

The shutdown: Last month’s government shutdown didn’t just delay the report — it also muddied the data. Jobs numbers are reported monthly, but they’re based on whichever week or payroll period includes the 12th of the month. In October, the 12th happened to fall smack in the middle of the 16-day shutdown, when thousands of federal workers were home on furlough.

As the Labor Department explained last week, furloughs won’t affect the main payroll figures, which are based on a survey of employers, because government workers were eventually paid for the time they missed. But the shutdown will affect the unemployment rate, which is based on a separate survey of households. Furloughed workers will count as “unemployed” if they were out of work the entire week, which economists estimate could lead to a temporary uptick in the unemployment rate of a tenth of a percentage point or more. (Those who were recalled partway through the week will count as “part-time for economic reasons,” thereby driving up the broader “U-6” measure of underemployment as well.)

Most economists pay closer attention to the business survey anyway because it is generally considered more reliable. But the shutdown gives an extra reason to treat this month’s household-survey data with a healthy dose of skepticism.

The shutdown, round 2: Furloughs weren’t the only effect of the government shutdown. The drama in D.C. also hit government contractors and some other businesses, leaving some private-sector employees out of work — and unlike government workers, most of them didn’t receive back pay. The effect probably wasn’t big enough to drive a major change in the economy-wide numbers, but it could show up in individual industries. Keep an eye on average hours worked, not just payroll totals — many affected companies may have cut back hours instead of laying off workers altogether.

Watch the trend: The shutdown-related muddiness makes it all the more important to look at the longer-term trend rather than just the latest month’s data. The recent trend has been worrisome: From January through April, employers added an average of 205,000 employees per month; since then, they’ve added just 156,000. It isn’t clear whether the slowdown is real or a statistical anomaly — in recent years, job growth has tended to be stronger in the fall and winter than in the spring and summer, which some economists have suggested could be due to flaws in the government’s seasonal-adjustment formula. If the weakness persists in coming months, however, that could suggest a genuine slowing in the pace of job growth.

And watch the Fed, too: Federal Reserve policymakers surprised Wall Street in September by continuing the central bank’s $85-billion-per-month bond-buying program, rather than beginning to wind it down as widely expected. One reason cited by policymakers: The looming fiscal fights in Washington, which threatened to disrupt the economy — a threat that has since passed, at least temporarily. The Fed held off again in October, but left the prospect of a December “taper” on the table, saying any decision will depend on the economic data. That makes the next two jobs reports particularly important.

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